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Gold Hits Record High on Growth Concerns

Release Date: 
Tuesday, August 2, 2011

The price of gold reached a record Tuesday on concerns that global economic growth is slowing and the U.S. may still suffer a credit rating downgrade. The metal traded at $1640.30 per ounce at 9:27 a.m. Pacific Time on the New York Spot Market.

After passing the House yesterday, the $2.4 trillion U.S. plan to raise the federal debt limit and decrease spending is headed to the Senate for approval. "The U.S. has averted default, but not averted downgrade, so that's the driving thought," said Credit Agricole analyst Robin Bhar commenting on the possibility of the U.S. losing its AAA credit rating. "All the ongoing economic uncertainty and fears of a downgrade of the U.S. AAA sovereign rating are gold supportive," Andrey Kryuchenkov, an analyst at VTB Capital in London, wrote in a report. "Weak macro numbers would also delay the tightening cycle in the U.S."

Manufacturing indices in the U.S., Europe and China declined in July, causing concern that the global recovery is losing steam. The U.S. Institute for Supply Management said yesterday that its factory index dropped to its slowest pace in two years.

South Korea's central bank said on Tuesday it bought 25 tons of gold between June and July to diversify its foreign reserves. This is the bank’s first purchase in more than a decade and raises its total gold holdings to 39.4 tons. "This news reiterates the fundamental view that most investors, asset managers, and even central banks hold true—that gold remains the quintessential currency hedge, a stabilizing asset for portfolios, and a safe haven in uncertain economic times," said David Meger, director of metals trading at Vision Financial Markets, a futures broker based in Chicago.

(Sources: "Gold Hits Record as Misery Mounts Over Debt," CNBC, August 2, 2011; "Gold Advances to Record Price as Slowing Economic Growth Increases Demand," Bloomberg, August 2, 2011)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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